FTC Extracts $250,00 Fine for Affiliate Reviews & Endorsements

Bill Hartzer highlighted this recent FTC fine levied on Legacy Learning Systems for having its affiliate seller network aggressively laud the product on their websites in close proximity to affiliate purchase link back to Legacy’s site. The FTC argued that these affiliate websites “falsely posed as ordinary consumers or independent reviewers” and thus violated the FTC rules requiring endorsement disclosure.

It appears that Legacy Learning Systems was actively recruiting this “Review Ad” affiliate network. As part of the settlement they agreed to monitor the network and be responsible for any future behavior of the affiliates. An onerous task indeed.

Eric Goldman’s blog summarizes the issue as follows:

What did the reviewers do wrong?: Reviewers did not disclose that they were affiliates of Legacy – i.e., received a cut of the sales, and in some cases were paid to review Legacy products . These were not “the independent reviews reflecting the opinions of ordinary consumers.” (Examples of the reviews can be found in Exhibit A to the Complaint [pdf].) In some cases, the reviewer websites had disclosures, but the disclosures were anemic at best and were not contained in the posts themselves (e.g., “we are paid by some of the companies who’s [sic] products we review” – not exactly a robust disclaimer). [Italics added.]

Where did Legacy go astray: For one thing, Legacy called these affiliates “review ad” affiliates. I would probably avoid this terminology. The complaint did not include a copy of the affiliate terms, so we don’t know whether Legacy contractually required the affiliates to comply with the FTC’s guidelines or explained how to comply. The complaint also does not specify whether Legacy paid the reviewers for their reviews (it alleges that the affiliates received a cut of the sales), but judging from some of the reviews and the websites of the reviewers, and from Legacy’s suggestions to its affiliates, this seems to be the case (at least with some reviewers). Legacy offered suggested disclaimers (to affiliates) on its website but even these were ambiguous (“Affiliate Disclosure Requirements and Examples Legacy Learning Systems“):

[Suggested] Disclosure: We are a professional review site that receives compensation from the companies whose products we review. We test each product thoroughly and give high marks to only the very best. We are independently owned and the opinions expressed here are our own. [emphasis added]

Regardless of what Legacy may have suggested or required of its affiliates, Legacy also did not have any sort of compliance program to make sure that its affiliates made the necessary disclosures.

In this case, the FTC has essentially argued that affliates that are speaking highly of a product need to dislose that they are in fact benefiting from the product that they are touting. The FTC  previously fined an Ad Agency that posted fake reviews on iTunes on behalf of a client.

It is clear in this settlement that the FTC thinks any type of deceptive on-line self promotion is a violation of their guidelines. While this settlement does speak tangentally to the issue of online user reviews at review sites, the FTC has yet to directly the address the responsibility a business owner in encouraging faked reviews at sites like Google Places and Yelp.

Given the uptick in fake reviews coming from businesses large and small, one has to think that additional enforcement efforts focusing directly on businesses posting fake reviews can not be far in the future. From where I sit, it can happen none too soon.

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FTC Extracts $250,00 Fine for Affiliate Reviews & Endorsements by

4 thoughts on “FTC Extracts $250,00 Fine for Affiliate Reviews & Endorsements”

  1. @Mike

    >>>From where I sit, it can happen none too soon.<<<

    I totally agree. I have also noticed SEOs writing reviews for clients. Pretty easy to spot and totally unethical, IMO.

  2. @John

    Yes, the practice is widespread. In the case of SEO’s, the FTC decision in the iTunes’s case makes it clear that whether an agency is acting with or without business approval, they are legally responsible. So the practical impact is beyond ethics for an agency into behavior that can be construed as illegal and punished with huge fines. Hardly seems worth the risk… unlike “black hat” SEO where you are only violating Google’s rules, here you are “messing with the man” at both the state and federal levels.

    If a small company has never dealt with either, I can say that it is a brutalizing experience.

    Mike

  3. I recently found that the Larry H. Miller Used Car Supermarket in Sandy, UT does something like this. Only they use a company called ReviewBoost who actually collects reviews from real customers. They take those reviews and filter out the negative ones posting ONLY the positive reviews. I don’t believe they ask the customer to rate it 1-5 stars, I believe this is just a judgement call on behalf of the agency rep. If it sounds positive give it 5 stars and a “Best Ever” rating. Then they go back in with other fake Google Accounts and rate the positive reviews as helpful and the negatives from other actual customers as “not helpful” so Google will falsely overstate the actual star rating. To me, this is a gray area. Yet, at best it’s highly unethical! I posted some screenshots of what it looks like for the Larry H. Miller Used Cars dealership in Sandy, UT.

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